Employer On-Costs Explained (2025/26): NI, Pension, Holiday & Overheads

Written by EmployerCalculator Editorial · Reviewed against official UK sources · Last updated: April 2026

What are employer on-costs? This guide explains all the costs above salary — employer NI at 15%, pension, holiday pay accrual and overheads — with worked examples for 2025/26.

What are employer on-costs?

Employer on-costs are all the costs that sit above an employee's gross salary — the amounts the employer pays on top of, or in addition to, the salary itself. The main components are employer National Insurance (NI), employer pension contributions, and overhead costs such as office space, equipment and management time.

Understanding on-costs is critical for workforce planning, budgeting and evaluating the true return on a hire. A £35,000 salary does not cost £35,000 — it typically costs £38,000–£42,000 depending on pension rate and overhead assumptions.

Employer NI — the largest on-cost for most employers

From April 2025, employer NI is charged at 15% on all earnings above the secondary threshold of £5,000 per year (£416.67 per month). This is the largest mandatory on-cost for most employers.

At a £35,000 salary: employer NI = (35,000 − 5,000) × 15% = £4,500 per year (£375 per month). At £50,000: employer NI = (50,000 − 5,000) × 15% = £6,750 per year (£562.50 per month). These figures represent employer liability only — employee NI is separate and deducted from the employee's pay.

Employment Allowance can reduce employer NI by up to £10,500 per year for eligible employers. Eligibility requires that total employer NI liabilities were below £100,000 in the prior tax year and the employer does not employ any single person who is a director of a limited company with no other employees.

Pension contributions and other on-costs

Auto-enrolment requires employers to contribute a minimum of 3% of qualifying earnings (£6,240–£50,270 for 2025/26). At £35,000, the qualifying earnings band gives £28,760 in pensionable pay, and 3% employer contribution = £862.80 per year (£71.90 per month).

Other on-costs vary by employer but typically include: employer liability insurance, recruitment costs (job board fees and agency fees of 10–20% of salary for permanent hires), IT equipment (£500–£2,000 per employee), office space, and management overhead. A common rule of thumb is to add 10–15% of salary as a blended overhead allowance. This gives a total cost-to-company at £35,000 of approximately £38,000–£42,000 per year.

Frequently asked questions

How much does it cost to employ someone in the UK?

The true cost to employ someone in the UK is typically 15–20% above gross salary. At £30,000: employer NI £3,750 + pension £713 = approximately £34,463 per year. At £50,000: employer NI £6,750 + pension £1,313 = approximately £58,063 per year. Adding workplace overheads of £2,000–£5,000 can bring the total to 20–25% above the headline salary.

What is the employer NI rate for 2025/26?

For 2025/26, employer Class 1 National Insurance is charged at 15% on employee earnings above the secondary threshold of £5,000 per year (£96 per week, £416 per month). This rate increased from 13.8% in April 2025, when the threshold was simultaneously cut from £9,100 to £5,000. Both changes apply from 6 April 2025.

How much employer NI do I pay on a £35,000 salary?

At £35,000 salary, employer NI for 2025/26 is £4,500 per year — 15% on £30,000 of earnings above the £5,000 threshold. That is £375 per month. In 2024/25, the same salary produced £3,585 in employer NI. The April 2025 changes therefore add £915 per year on this salary alone.

What is Employment Allowance and who can claim it?

Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2025/26, increased from £5,000 in 2024/25. The previous £100,000 NI bill eligibility cap has been removed, so more businesses qualify. Companies where the only paid employee is also a director cannot claim. Apply through payroll software via the Employer Payment Summary indicator.

What is the total employer cost above salary?

Beyond salary, employer cost includes: employer NI (15% on earnings above £5,000), employer pension (minimum 3% of qualifying earnings between £6,240 and £50,270), and overheads such as equipment, software and workspace. For most UK salaries this adds 12–20% above headline pay. Use the inputs above to set your exact pension rate and overhead figure.

What changed for employers in April 2025?

Three changes took effect from 6 April 2025: the employer NI rate rose from 13.8% to 15%, the secondary threshold was cut from £9,100 to £5,000, and Employment Allowance increased from £5,000 to £10,500 with the eligibility cap removed. For a £30,000 salary, annual employer NI increased from approximately £2,884 to £3,750 — a rise of £866 per year.

How is employer NI different from employee NI?

Employer NI is a cost paid by the employer on top of gross salary — it does not reduce take-home pay. Employee NI is deducted from the employee's wages instead. For 2025/26, employees pay 8% on earnings between £12,570 and £50,270, then 2% above that. Employers pay 15% on all earnings above £5,000 with no upper cap. This calculator covers the employer side; for employee take-home pay see AfterTaxSalary.co.uk.

What are employer costs in the UK?

UK employer costs in 2025/26 are: gross salary, employer NI at 15% on earnings above £5,000, employer pension at minimum 3% of qualifying earnings (£6,240–£50,270), and any operational overheads such as equipment or software. For a £35,000 salary, statutory employer costs (NI + pension) add approximately £5,363/year before overheads.

How much do I cost my employer in the UK?

If you earn £35,000, you cost your employer roughly £40,363/year — your salary plus £4,500 employer NI and £863 minimum pension. At £50,000, the total is approximately £58,063. Your employer pays these on top of your salary; they are not deducted from your pay. Use this calculator to see the exact figure for your salary.

Is this a PAYE cost calculator for employers?

Yes. PAYE employer costs include employer NI — calculated at 15% above £5,000 for 2025/26 — plus the employer's auto-enrolment pension contribution. The full calculator models both alongside any overhead assumptions to give a total PAYE-basis employer spend per employee.

What is a cost to company (CTC) salary in the UK?

Cost to company (CTC) in the UK refers to the total annual cost of an employee to their employer — salary, employer NI, pension, and overheads combined. A £35,000 CTC salary typically means a gross salary of roughly £30,000–£32,000 once the employer's NI and pension obligations are included in the total. Use this calculator to work backwards from a CTC budget to a gross salary.

Tools

Tools worth considering

If you are moving from estimating employer costs to actually running payroll, accounting or staff administration, these are types of tools commonly used by UK employers. We do not endorse any specific product — this is an editorial summary only.

Xero Payroll

Cloud payroll bundled with Xero accounting. Handles RTI submissions, auto-enrolment and payslip generation. Commonly used by UK small businesses already on Xero for bookkeeping.

See Xero Payroll →

QuickBooks Payroll

Payroll add-on for QuickBooks. Used by UK small employers for PAYE, NI, pension and HMRC RTI. Integrates with QuickBooks accounting.

See QuickBooks Payroll →

Sage Payroll

Long-established UK payroll software with HMRC recognition. Works standalone (without Sage accounting) and is widely used in small businesses and accountancy practices.

See Sage Payroll →

Employment Hero

HR and payroll platform used by growing UK teams. Combines contracts, onboarding, leave management and payroll in one system. HMRC RTI integrated.

See Employment Hero →

Once you know the cost — what next?

Running payroll correctly after you have calculated employer cost is the next practical step. The tools below handle HMRC RTI submissions, auto-enrolment pension and payslip generation automatically.

Compare UK payroll software → Open employer cost calculator Check Employment Allowance eligibility

EmployerCalculator Editorial. Content reviewed against HMRC guidance. Estimates only — not financial or legal advice. See our methodology and sources.